The period between Christmas and New Year is usually a little quiet and allows me to think and plan some ideas for the following year. Obviously, one of my focuses is on how I can generate a profit from investing. One person who knows a lot about how to do this (over many decades) is Warren Buffett. So here are a few gems from the great man that I’ll mulling over.
Sometimes less is more
My first point comes from resisting the urge to overtrade. Buffett said that “you do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells.“
Naturally, I want to kick the year off strongly with some smart purchases in Q1. However, I don’t want to force things too much. If there are some good stocks at the right price, then perfect. But if it takes longer before I feel comfortable, then that’s also fine.
A sure way to erode my profits is to buy and sell too much, or simply buy out of the fear-of-missing-out (FOMO).
Keeping it simple
Another point that I feel is really relevant for 2023 is to take advantage of companies that have been doing the same thing for a long time. This speaks to the note from Warren Buffett that “our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me.”
Next year is going to be tough, with the UK in a recession. Consumers will change their spending habits. So buying stocks that have a track record of performance from selling the same product/service over time (good times and bad) is smart. Over various economic cycles, it’s often the slow and steady performers that weather economic storms the best.
Don’t get caught up waiting for a crash
Sure, there’s the potential for a stock market crash next year. If this comes around, I could profit from buying shares at cheap levels. Yet there’s the potential that this won’t happen as a lot of the bad news is already factored in.
In this case, as Buffett said, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
I don’t want to miss out on gains next year simply because I’m waiting for wonderful prices from a crash. Instead, even with fairly priced companies, if the business is sound, then I can still aim to make a profit.
Avoiding mistakes
I’m not going to claim that simply following the above points is going to make me rich next year. But I do think that I can avoid some stupid mistakes. In turn, the losses I hope to avoid from those mistakes should allow my overall returns to be higher.
